Technical View: Nifty forms long bearish candle, major correction likely if index breaks 21,500

The Nifty 50 had a subdued start to the week, wiping out all its previous day's gains and is on the verge of upward sloping support trendline adjoining lows of October 2023 and January 2024. This was along with sharp correction in the broader markets.

Hence, if the index breaks 21,500, the immediate support, then the correction till the January lows 21,137 can't be ruled out, experts said, adding on the higher side, the resistance may be at 21,750-21,800 levels.

The Nifty 50 opened higher at 21,801 and hit an intraday high of 21,832 in initial trades. The index immediately lost those gains and traded lower for the rest of session. It touched an intraday low of 21,575, before closing 167 points down at 21,616, and formed long bearish candlestick pattern on the daily timeframe.

"The weakness in the benchmark Nifty was accompanied with deep cut in the broad market indices like midcap and small cap segments on Monday. This is not a good sign," Nagaraj Shetti, senior technical research analyst at HDFC Securities said.

The Nifty Midcap 100 index fell 2.5 percent and Smallcap 100 index tanked 4 percent on weak breadth.

He feels the short-term trend of Nifty is negative. "The benchmark and broader market indices are now placed to show further weakness in the near term. Next lower support for the Nifty is at 21,200-21,150 levels for this week. Immediate resistance is at 21,800 levels," Nagaraj said.

On the options front, the maximum Call open interest was seen at 22,000 strike, followed by 22,500 strike, and 21,800 strike, with meaningful Call writing at 21,900 strike, then 21,700 and 21,800 strikes, while on the Put side, the 20,800 strike owned the maximum open interest, followed by 21,000 strike, and 21,500 strike, with writing at 20,800 strike, then 21,400 strike and 21,300 strike.

The above options data indicated that 21,500 is expected to be an immediate support for the Nifty 50, while on the higher side, 21,700-21,800 is likely to be resistance zone.

Bank Nifty

The Bank Nifty was also under pressure and banks were key drivers for pulling the market down. The banking index tested 200-day EMA (exponential moving average - 44,680), which always play a crucial role as a support, for the first time since January 25, but saw some buying interest at lower levels and as a result defended the same.

The index fell 752 points or 1.65 percent to 44,882 and formed long bearish candlestick pattern on the daily charts.

"Closing below the near-term support zone of 45,000 signaled bearish sentiment. The index faces immediate resistance at 45,100, and a breakthrough could trigger short-covering moves towards 45,500 levels," Kunal Shah, senior technical & derivative analyst at LKP Securities said.

Conversely, the immediate support is at 44,800, and breaching this level may intensify selling pressure towards the 44,000 mark, he feels.

The volatility spiked above 16 mark again after couple of weeks, increasing discomfort for bulls. India VIX, the fear factor, rose by 4 percent to 16.06, from 5.45 levels.

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